An entrepreneur’s paradise. The startup promised land. The mystical, magical epicenter of all things big and great and game-changing.
In many ways, Silicon Valley has become the Hollywood of the 21st Century, complete with leading actors and feuding cast members, fascinating storylines and riveting sub-plots, and an intoxicating lineup of heroes, victims, and villains.
With a whole lot of craziness happening behind the scenes.
The biggest investors are put on pedestals. The world-beating founders are deified. And every message spawned from that small, holy, tech-infused strip of Northern California dreamworld is treated as gospel.
I spent years working with Silicon Valley’s sexiest companies while at Procter & Gamble. We were their biggest advertiser – i.e. we made them the most money – so we were the ones being courted and coveted. But even then, there was something mesmerizing about those hard-charging startups.
They were just so damn cool.
Then, I spent 2 years living in San Francisco, leading Social and Digital for one of the fastest growing startups at the time. We were on track to be the largest U.S.-based IPO of 2014. And, while some of the shine wore off of the Silicon when I viewed it up close, I couldn’t deny the energy. Or the opportunity.
I learned that if you played the game right and followed the protocol – went to the meetups and networking sessions, drank with the boys, small talked with investment gatekeepers and nodded your head in extravagant agreement to managing directors at VC firms who often times had less experience and, in many cases, less talent than you…
Then you could join the club.
When I left GoPro in 2013 to go back home and build my own startup in Texas, I steered clear of the bulk of that Bay Area buildup, but I still left believing in the unquestioned validity of its doctrine.
Five years, a few million dollars, billions of media impressions and several near-fatal company decisions later, I learned that most of what Silicon Valley’s selling is simply not true.
It’s just the cyclical, self-focused and self-profiting opinions of a bunch of dudes who may or may not have the skills, talent, experience, network, access, ambition, vision, intuition or passion as you do.
Even if they do have more money.
And with even with a pure mission, killer product launch, successful product sale and (thus far) a winning pivot under our belts, it’s clear that we almost followed the Valley’s plug and play formula off the wrong cliff.
Every day, I see another startup that’s struggling because they are trying so hard to follow those old-school rules. And, after five years working to build my own company, I’ve come to realize that the reason 90% of startups FAIL is largely because of the opinions, myths and, yes, lies, that are rewarded and romanticized within the Bay Area bubble.
But times have changed. The world has flipped. And you have as much opportunity where you sit right now – with what you know, what you believe, and how hard and far you’re willing to work – as anyone in SOMA, Santana Row or Sandhill Road.
These are the six biggest Silicon Valley-inspired lies that could kill your startup.
Lie #1: You have to raise a lot of money.
Somehow, over the last 15 years or so, raising money became a benchmark of startup success.
And, I’d argue, since 2010, it’s actually become a GREATER yardstick than actually MAKING money. How crazy is that?
When you raise money you are giving up control and ownership of your company for the dollars that you believe will help grow it. “Grow” is the optimum word. The pendulum has completely swung from fundraising for growth, to campaigning door-to-door before you get your first customer. You’ve been conditioned to think you need to raise money as Step 1 of your multi-year, thousand-stride journey toward building your dream.
Gone is the glamour of the bootstrapper and the “build it slow and steady” approach that has been the true wealth strategy of most of the world’s most successful people. Billionaires like Bill Gates, Branson, Bezos, Brin, Page and yes, even Donald Trump, built their massive fortunes over years and years of pounding the pavement. Not to mention many of South America’s, Asia’s and the Middle East’s legendary entrepreneurs.
Today everyone wants the quick fix. Easy money.
Hit it and quit it.
So instead of busting your ass to scrap together your MVP (‘minimum viable product’) and test your business model and make your first sale and retain your first few customers and learn and tweak and iterate and evolve your plans… you’re waiting in line at some local startup ‘pitch session’ or bending over backward to meet that Angel Investor who once invested in (Insert formally cool startup that I promise you is not making money now).
Tech Crunch, Crunchbase, SXSW, the Inc 5000 and every faux-valuation index and fancy funding disclosure out there has fooled you into thinking that raising money means you’re winning. Company A just closed a $2M seed round. Company B just raised a $70M series B. Company C-F are valued at $600M. People acting like the fact that Uber raised $22 BILLION is a good thing (the company just cut their valuation by over 30% to about $48 billion; not a good ‘raise to value’ ratio).
Now don’t get me wrong, in many cases raising money is an art form – the ability to prepare and deliver a compelling pitch and demonstrate your knowledge and passion for your business are all critical skills. Selling people on you, and your vision, is powerful. But why not use those rare skills of yours to sell your own product, versus sell your company’s equity? And let’s be honest, most of the time, it’s not your selling skills at the early stages of company development that get you money. It’s who you know and what you are willing to give up.
It’s all bullshit.
I say this as someone who fell into the same trap. In 2014, I raised a $1M seed round, pre-MVP. Based on our growing brand and active social community, I negotiated insanely good terms. Gave up the same amount of equity that my peers were getting $50K for. But taking that influx of cash was actually the beginning of a bunch of bad decisions. Because I never had to really hustle and grind to make money those first couple years. I had a solid boost that led me to act beyond our means as an early stage startup. Spent too much, and stretched too far.
Raising money does NOT mean you are winning. It means you are losing. Losing control, losing leverage, losing flexibility, losing speed, and in some cases, losing identity. Because you now have people with one clear objective – to generate returns for their investors – obfuscating your own personal vision.
If you’re trying to build a for-profit company, focus on making money before you start thinking of borrowing or raising any. Figure it out on your own. Whether you call it bootstrapping, hustle or ‘the power of broke’ – get to profitability on your own. Then, if you sense that an infusion of capital will pour gasoline on your already-smoldering fire, go raise some money. But this time, on your terms.
Lie #2: You need a big team.
The infamous ‘team’ slide on your pitch deck.
Those polished pictures and smiling faces. The trumped-up titles. Oh, and of course, that list of your “Advisors” – basically a collage of the most famous, credentialed or influential people you know, all who likely spend just 5-10 minutes a month thinking about you or your company.
I get it – investors like to see a great team (see #1 above)… But what does ‘great’ really mean? We know the folklore of the three guys in the basement or the newlyweds selling their clothing line out of their van. But, more and more, I’ve noticed another faulty barometer of success: the size of your team.
This was another trap I fell into back in 2014. As a 6-month old, seed-stage, pre-revenue startup, we had 15 people on our team. Now, I’ll be honest, we were getting paid well below market rate. But, just the sheer size of the team, at that stage, was unnecessary. It either meant we were doing too much, or we weren’t doing anything well. Too broad or too inefficient. Looking back, we could have driven the same results, with likely twice the revenue, with a third of the people (I’ve carried that lesson with me during our company pivot to Besomebody Paths).
I meet so many startups that are 10+ people deep from day one. That’s too many. You don’t need a lot of people. You just need the right people.
It’s amazing how much a few self-motivated, passionate people can do when working on the same mission and striving toward the same vision.
I had one young Ed Tech VC tell me that his firm typically will only invest in Series A rounds for companies that have about 25-40 people. Serious?? What kind of baseless metric is that? Size of payroll as a signal of success?? Why not real numbers like revenue, profit, customer base or market share? What if six people can do the work of those 25?
Yes, for sure, you will have to grow. You just don’t need to fill up the office (or garage) in year one.
Lie #3: You need an “All-Star” Board.
“Who’s on your Board?”
A common question of the Silicon Valley-ites. Similar to the team discussion, I completely understand how having influential, well-known, well-connected and/or supremely talented people on your Board is helpful. At different times at Besomebody, our Board has consisted of public-company CEO’s, executives of multi-billion dollar companies and Hall-of-Fame athletes. And many other prominent folks who wanted board seats in exchange for investment. I am grateful for the time and contributions of our Board.
But, for the majority of young startups, ours included, the Board plays less than a 5% role in what you are doing. That’s if you’re doing it right. If the Board is more involved, you have given up too much control or lack the skillset within your core team to properly execute.
The real purpose of the Board for early-stage companies is not for governance, monthly reports or flashy meetings. It’s to literally be a ‘sounding board’ for questions and scenario planning, and a “springboard” for ideas and opportunities. A great early-stage Board member is making introductions, providing actionable feedback and helping you make money or raise money (again, when the time is right, per #1 above). Anything else is unneeded and unnecessary. If your national or local celebrity Board Member does not do any of the above, he or she is wasting time and wasting a seat. And probably cost you too much equity.
And the MOST important part of building your early-stage Board is surrounding yourself with people who will push you, yet whom you unquestionably trust. 100%, no-questions-asked trust.
You will never have more say on the makeup of your Board than during the early days of building your company. Sacrifice some of the ‘brand name’ recognition that Silicon Valley tells you is important, and go with people who are smart, skilled and trustworthy. I am so lucky because my first Board Member was also the first female chemical engineer in the history of Pakistan. She graduated college from the prestigious Middle East Technical University in Ankara, Turkey, at age 18, and has gone on to have a ground-breaking career across three continents for some of the best engineering firms in the world. She’s closed deals north of $20 Billion with the likes of Shell, BP and Exxon.
She’s also my mom.
One time, another Board Member questioned the ‘optics’ of having my mother on the Board of my company. I was shocked. Her resume crushed his. She actually invested her own hard-earned money in the company versus managing other folks’ money like most institutional investors (including this one). And he was just slotted into a board seat because his firm invested in our company prior to his even working there. He was not a believer.
And the most ironic part of his pushback was that he actually worked for a family-founded, family-run company that had four family members on their own Board!
Suffice to say, I never looked at him the same again.
Put people you trust on your Board. And if mom and dad have skills that can help grow the business, save them a couple seats too.
Lie #4: You have to live on the Coast.
“You gotta move to the Bay.”
Heard it a thousand times. That’s where the talent is. That’s where the money is. That’s where the infrastructure and contacts and connections are. That’s where you go to get inspired.
The last part is true. A shot of Silicon Valley every now and then can do wonders. But you don’t need to build your company there.
Same holds true for New York City, or any other sexy city near the ocean. I’ve lived on all three coasts (East, West and Gulf), and I’ve spent the majority of my adult-life headquartered in the heart of the Midwest. It’s true, the big VC’s, especially in tech, are on the coasts. It’s true, early-stage funding is harder to come by as you move inland (again, see #1). But the game is totally changing. Some of the country’s most successful and profitable startups are growing out of places like Illinois, Ohio, Minnesota and Michigan, without the smokescreens, mirages and artificial milestones rampant on the coast.
California is the eighth largest economy in the world. The Midwest is the fifth. The Midwest is also bigger than Brazil, Russia, and India, each of which is routinely championed by VC’s as the next global, company-creating hotbed. According to Chris Olsen, co-founder and general partner at Drive Capital, in 5 years, the Midwest will actually have more startups than Silicon Valley.
Not to mention, the closer you get to Middle America, the clearer you see the problems that were on vivid display during the last election. And, just as importantly, the bigger the chance you can help solve them.
When you’re deciding where to start your company, you just need to think of three things:
1. Where can our core team work best together?
2. Where can we best test our business model and learn about our customer?
3. What will result in the least amount of monthly burn (i.e. what’s cheaper)?
Of course, if you have a family or a large partner, those are important factors that may determine where you can or can’t be as well.
If your core team is great on Slack and video calls, and you can build your product remotely, go for it.
If your core customers are big CPG’s, the Midwest is chock full of them. Texas has as many Fortune 500 companies as California and New York, and the next three states with the most are Illinois, Ohio and Virginia.
Boulder, Pittsburgh and Omaha have burgeoning startup scenes. Not to mention Cincinnati, where we have chosen to build Besomebody with our new vocational training and job placement model, which is a top 10 job market and home to half a dozen of the largest employers in the country.
All of those non-coastal areas mentioned above are a ton cheaper than the $5K/month rent that a two-bedroom apartment costs in San Francisco.
And, maybe most importantly, we are often most equipped and most passionate about solving problems that we’ve experienced first-hand. If you see something where you live that you can restore, reinvent or improve, then starting where you’re standing is a perfect place to begin.
You can build a great company anywhere.
Lie #5: You need a lot of publicity.
More than 100 media outlets around the world covered the original Besomebody app. Over 1 billion impressions. We were featured in USA Today, Tech Crunch, Inc., Venture Beat and countless other top-tier press. Business journals in 21 states wrote about our experiential learning marketplace. Entrepreneur Magazine said we were the “app to take over Facebook.” We were on one of the highest-rated episodes of Shark Tank.
It was pretty cool.
But it wasn’t necessary.
In this faux-filtered, fake news era, we’re conditioned to crave that type of publicity, even when we know it rarely skims beneath the surface. It makes us feel good, and the likes and shares feel like badges of honor and accomplishment. But people have short attention spans. And yesterday’s news is forgotten by morning. And, really, you just need a great product that provides great value. That’s what really gets people talking.
All the hype we received was well-intentioned, and I’m proud of the product we built (and the reason we built it), but the early press just put a shiny paint job on an unfinished chassis. We were getting early traction but we hadn’t cracked our primary business drivers.
We had a very press-friendly story about passion and sacrifice and doing what you love. But the business wasn’t as strong. During our pivot, we’ve done zero press outreach, and generated more revenue in nine months than we did in three years with our previous platform.
When you see all your peers popping up on their local “Hottest Startups List,” give their Facebook share a “like” and a “congrats!”… Then get back to work.
Lie #6: You have to build everything in-house.
So many startups run out of time, money or resources because they are trying to do all the heavy lifting themselves. Yes, you need some your own secret sauce. Patents, IP, and proprietary processes are all important. You need to cultivate assets that differentiate you and elevate you versus the competition. And you need to incorporate all of those into your product.
But YOU don’t need to build the entire thing.
You should be tapping into existing services, forging value-added partnerships and bartering with other businesses.
That could mean teaming up with another startup to do a co-launch event, or waiting on developing your own custom software solution – leveraging other apps and services in the early days – until you’re confident about your business model.
At Besomebody, we use more than two dozen services to drive our business and build our community, from Juicer to collate our social media content, to Typeform to house our candidate applications.
In the past, I would have built both those in-house. Waste of time and money. What you lose in customization, you gain in efficiency and speed. And nowadays, there are 10 startups doing 10 things that can help build you grow your business, from HR and payroll to content creation to data storage. Everybody can win.
When you spend a bit less time building unnecessary features and extensions of your product, you can focus more on business development. You rarely hear venture capitalists or Sharks talking about the importance and power of great biz dev, but it’s often the difference between making it, or folding within a couple years.
Biz Dev takes different forms whether you’re a B2B or B2C company (or a bit of both, like us), but the core ingredients are the same: perfectly understanding your customer, adeptly articulating your value, and purposefully building great relationships.
Strategic partnerships, smart asset sharing, and great business development mean you don’t have to build everything yourself, giving you more time to learn and serve your customer.
And Finally, The Most Important Truth
I learned all these ‘lies’ the hard way. And I’m grateful for that learning. But I’m also hopeful that those of you beginning to embark on a similar path can benefit from my mistakes. Then we all win.
But the most important truth to remember – beyond all the myths, misperceptions and misgivings – is that you are enough. You have it in you. It won’t be easy. But if you believe in your vision, if you’re passionate about your mission, and if you’re willing to do whatever it takes to make it happen –through the highs, lows and all the spaces and places in between – then you’ll get to where you want to go.